4000 - Advisory Opinions

This is in response to your letters of July 26 and August 4, 1993
pertaining to disclosures about tiered-rate accounts which are required
by Regulation DD, 12 C.F.R. Part 230, Truth in Savings ("Reg
DD").

Your letter of July 26 enclosed two different drafts of proposed
disclosures of annual percentage yields ("APYs") for tiered-rate
accounts which you plan to enclose with monthly statements. You inquire
whether either disclosure is sufficient to satisfy Reg DD requirements.
Your letter of August 4 requests review of the heading on a monthly
"Money Market" statement for Reg DD sufficiency and questions the
logic of giving an APY for the highest tier of a tiered-rate account
which is based on an assumed maximum balance.

Section 230.2(t) of Reg DD defines a tiered rate account as an
account that has two or more interest rates that are applicable to
specified balance levels. Section 230.6(a) states that if a depository
institution mails or delivers a periodic statement, the statement shall
disclose an APY earned during the statement period, calculating the APY
according to the rules in Appendix A of Reg DD.

You have informed me that your institution pays a stated interest
rate only on the portion of the balance within the stated tier. In
other words, any money market account with a balance of $500,000 or
less will earn an APY of 3.66%. Any amounts over $500,000 will earn
an APY of 3.47%. You must therefore use Tiering Method B as required
by Part 1.D. of Appendix A of Reg DD. You must state an APY for each
balance tier. You need
only list one APY for the first tier of
your money market accounts since it will have the same APY throughout.

For the second tier, however, you must provide a range which shows
the lowest and highest percentage yields for that tier. The low figure
must be calculated based on the total amount of interest earned for a
year assuming the minimum principal required to earn the interest rate
for that tier. The high figure must be based on the amount of interest
the institution would pay on the highest principal that could be
deposited to earn the interest rate for the second tier. If the account
has no maximum limit on the last tier, however, the institution may
assume any amount.

Your low APY for the second tier of your money market accounts
should therefore be calculated for a balance of $500,000.01, the
minimum amount necessary to earn the second-tier interest rate. The
high APY should be based on an assumed maximum since there is no limit
on the second tier. You have assumed a maximum balance of $600,000 for
the high APYs in the second enclosure and the statement heading. If the
APYs listed in those two documents are indeed based on those sums and
have been accurately calculated pursuant to Tiering Method B, it is my
opinion that they satisfy section 230.6(a) of Reg DD. The first
enclosure with the July 26 letter does not satisfy section 230.6(a),
however, because it does not list lowest and highest percentage yields
for the second tier.

I appreciate that you and your depositors may find this result
illogical and that your institution would prefer to simply state one
APY that would apply to any balance over $500,000. Appendix A of Reg DD
flatly states, however, that a range must be provided for tiered
accounts.

I must note that it is my opinion that the second enclosure and the
statement heading must also satisfy section 230.8 of Reg DD,
Advertising. That is because these documents appear to meet the Reg DD
definition of advertisement, that is, a commercial message that
promotes the availability of an account. See 12 C.F.R. § 230.2(b). As
such, the documents must, in addition to listing APYs for each tier,
clearly and conspicuously state:

a. the period of time during which an APY will be offered
or state that an APY is accurate as of a specified date.

b. the minimum balance required for a certain APY (for
tiered-rate accounts, the minimum balance for each tier shall be stated
in close proximity and with equal prominence to the applicable APY).

c. the minimum deposit required to open the account if it
is greater than the minimum balance necessary to obtain the advertised
APY.

d. a statement that fees could reduce earnings on the
account.

I hope that this letter is responsive to your query. Please do not
hesitate to contact me if you should have any questions about this or
any other matter.